Late last week, on February 12, the CFPB announced actions against three mortgage companies for alleged violations of Regulation N, the Mortgage Acts and Practices Advertising Rule. Among other restrictions, Regulation N bars any commercial misrepresentation of the relationship between a credit provider and a government. According to the CFPB, the three mortgage companies at issue—All Financial Services, Flagship Financial Group, and American Preferred Lending—wrongfully depicted their affiliation with the U.S. government in direct mail advertisements.
The three actions—one civil suit and two consent orders—mark the first we’ve heard from the Bureau or the FTC regarding their joint “sweep” of roughly 800 mortgage-related advertisements since the two agencies issued warning letters to several institutions in November 2012.
The facts articulated in the two consent orders are markedly similar. As alleged by the CFPB, Flagship Financial Group sent more than one million direct mail advertisements claiming to be a “HUD-approved” lender when, in fact, it was not. Thousands more Flagship mailers allegedly opened with a reference to an FHA press release, “HUD No. 12-045,” and instructed recipients to phone an “assigned FHA loan specialist.” According to the order, Flagship’s name was buried in a disclaimer on the reverse side of the ad. Likewise, the CFPB alleged that American Preferred Lending sent 100,000 mailers featuring an FHA-approved lender logo and a reference to a web address, FHAdept.us. While American Preferred is authorized to originate FHA-insured loans, it enjoys no greater affiliation with the government than any other lender authorized to engage in the same activity. The Bureau determined that these representations connoted the authors’ affiliation with the U.S. government, and, as such, they violated Regulation N. Flagship and American Preferred agreed to pay penalties of $225,000 and $85,000, respectively, and both are required to establish compliance plans subject to the Bureau’s approval. Pursuant to the consent orders, however, neither Flagship nor American Preferred admitted or denied any of the Bureau’s findings of fact or conclusions of law.
The facts articulated in the civil complaint differ slightly. Like Flagship and American Preferred, All Financial Services allegedly sent thousands of mailers with arguably misleading allusions to an affiliation with the government, including an official-looking seal and a heading that read, “Government Lending Division.” Unlike its peers in last week’s announcement, however, All Financial also allegedly misrepresented the terms of its reverse mortgage product by saying that no monthly payments “whatsoever” would be due “as long as you and your spouse live in the home.” According to the Bureau, this representation fails to depict the actual cost of the product, which does require payment of taxes and insurance, and it masks the reality that payment could be due on death of the borrower, even if the borrower’s spouse remains in the home.
The Bureau’s announcement does not indicate whether these actions effectively conclude the joint sweep effort, or whether additional actions based on the same investigation(s) may be forthcoming.